India to cap third-party apps’ handling of digital payments in 2021

November 6, 2020.
In this photo, a woman walks below a Google sign on the campus in Mountain View, Calif. (AP Photo/Jeff Chiu, File)

In this photo, a woman walks below a Google sign on the campus in Mountain View, Calif. (AP Photo/Jeff Chiu, File)

India plans to limit the share of transactions that can be managed by third-party processors on the country’s most popular digital payments platform, prompting Google, a top player in the rapidly growing space, to warn that the move could stifle innovation.

Flagship payments processor National Payments Corporation of India declared Thursday that starting Jan. 1, third-party payments apps will be prohibited from processing more than 30% of transactions on the Unified Payments Interface, or UPI, the state-backed infrastructure for peer-to-peer money transfers.

The corporation said that the rule “will help to address the risks and protect the UPI ecosystem as it further scales up,” and that it “balances consumer experience with growth outlook.” Last month, UPI surpassed 2 billion transactions, as the number of banks on the platform swelled to 189.

Companies that currently exceed the cap will get two years to comply with the rule, which will calculate the specific cap amount on a rolling basis based on the total volume of transactions in the previous three months.

Chief Operating Officer Praveena Rai addressed UPI participants regarding the rule in a Thursday circular.

Sajith Sivanandan, business head at Google Pay and Next Billion User initiatives, India, responded in a statement that “Digital payments in India is still in its infancy, and any interventions at this point should be made with a view to accelerate consumer choice and innovation.”

“A choice-based and open model is key to drive this momentum,” Sivanandan said in the statement, which Google provided to Fastinform.”This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments, and could impact the further adoption of UPI and the end goal of financial inclusion.”

Google Pay and Walmart’s PhonePe handled over 7 billion of all UPI transactions in 2019, more than two-thirds of the total amount, according to S&P Global.

The two companies enjoyed an even larger share in October, Reuters reported, when PhonePe was responsible for just over 40% of UPI transactions, followed closely by Google Pay. Dozens of other apps, including Paytm — which has a bank permit and so is not restricted by the new rule — together accounted for 20%.

The limitation could bode well for Facebook’s competitor WhatsApp, however, which won approval from the corporation Thursday to expand its payments base on UPI to an initial 20 million users, after months of setbacks.

The COVID-19 pandemic will only spur continued growth in mobile payments in India’s $781 billion point-of-sale market, where UPI and popular payment apps let customers pay straight from their bank accounts, according to S&P Global. 

Mobile payments processed through UPI increased 163% to reach $287 billion last year, S&P Global said, compared with a 24% rise in point-of-sale transactions using debit and credit cards, to $204 billion.